Pearson Edexcel · A-Level · Economics B

    Course version: 9EB0 · Version from Sept 2015

    A) The distinction between income and wealth

    Full specification wording

    Re-distribution of income and wealth: a) The distinction between income and wealth

    Income is a flow concept, representing the money received by an individual or household over a specific period.

    Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .

    • Point 1 of 3
    • 2 key terms

    Study notes

    From the checked teaching notes for this specification point.

    The idea

    Income is a flow concept, representing the money received by an individual or household over a specific period. Examples include monthly salaries, weekly wages, interest on savings, and annual dividends. In contrast, wealth is a stock concept, measuring the total net value of assets owned at a specific point in time, such as property, shares, and savings, minus any liabilities like mortgages. The distinction is vital: a high-earning professional might have high income but low wealth due to significant debt, whereas a retiree might have low income but substantial wealth from owning a home outright. Understanding this distinction is essential for evaluating economic inequality and the differing impacts of re-distribution policies.

    What earns the marks

    • Define income as a flow of money received over a specific period of time.
    • Define wealth as a stock of assets held at a specific point in time, net of liabilities.
    • Distinguish between the two concepts using concrete examples, such as wages (income) and property (wealth).
    • Explain the relationship between the two, noting that wealth can generate income (e.g. dividends from shares).

    Common mistakes and how to put them right

    • Using the terms income and wealth interchangeably.

      Put it right: Specify income as a flow over time and wealth as a stock at a given moment.

    • Assuming that high income guarantees high wealth.

      Put it right: High income earners may have high consumption and significant debt, resulting in low net wealth.

    • Categorising rent received as wealth.

      Put it right: Rent is a flow of income generated from the stock of wealth held in property.

    Exam tips

    • Use the terms 'stock' and 'flow' explicitly when distinguishing between wealth and income to demonstrate precise economic understanding.
    • When evaluating inequality, explicitly distinguish between income inequality and wealth inequality, as they require different policy responses.
    • Remember that policies designed to redistribute income, such as progressive income taxation, may not effectively redistribute accumulated wealth.

    Try the lesson

    The start of the Re-distribution of income and wealth: a) The distinction between income and wealth lesson, made from checked teaching notes for this specification point.

    Have a go first

    Which of the following best describes the economic distinction between income and wealth?

    Listen

    Income is a flow concept, representing the money received by an individual or household over a specific period. Examples include monthly salaries, weekly wages, interest on savings, and annual dividends. In contrast, wealth is a stock concept, measuring the total net value of assets owned at a specific point in time, such as property, shares, and savings, minus any liabilities like mortgages. The distinction is vital: a high-earning professional might have high income but low wealth due to significant debt, whereas a retiree might have low income but substantial wealth from owning a home outright. Understanding this distinction is essential for evaluating economic inequality and the differing impacts of re-distribution policies. A strong answer earns marks for these points. Define income as a flow of money received over a specific period of time. Define wealth as a stock of assets held at a specific point in time, net of liabilities. Distinguish between the two concepts using concrete examples, such as wages (income) and property (wealth). Explain the relationship between the two, noting that wealth can generate income (e.g. dividends from shares). A common slip: Using the terms income and wealth interchangeably. Instead, specify income as a flow over time and wealth as a stock at a given moment. Exam tip: Use the terms 'stock' and 'flow' explicitly when distinguishing between wealth and income to demonstrate precise economic understanding.

    See it

    A top-down flowchart. At the top, two nodes sit side by side: 'Income: a flow of money received over a specific period' and 'Wealth: a stock of assets held at a point in time, net of liabilities'. The income node points down to 'Examples of income: salaries, wages, interest on savings, dividends, rent'. The wealth node points down to two nodes: 'Examples of wealth: property, shares, savings' and 'Liabilities such as mortgages reduce net wealth'. The examples-of-wealth node points down to 'Wealth can generate income, e.g. dividends from shares', which in turn points to the income node, showing that wealth can produce a flow of income.
    It distinguishes income as a flow from wealth as a stock, gives examples of each, and shows how wealth can generate income.

    Key words

    Say what each word means before you turn the card.

    Income

    Try answering aloud or in your head before turning the card.

    Wealth

    Try answering aloud or in your head before turning the card.

    See every definition
    Income
    A flow concept, representing the money received by an individual or household over a specific period.
    Wealth
    A stock concept, measuring the total net value of assets owned at a specific point in time, minus any liabilities.

    Label the diagram

    Some boxes have lost their names. Pick the right name for each number.

    The diagram again, with 3 boxes numbered instead of named. A top-down flowchart. At the top, two nodes sit side by side: 'Income: a flow of money received over a specific period' and 'Wealth: a stock of assets held at a point in time, net of liabilities'. The income node points down to 'Examples of income: salaries, wages, interest on savings, dividends, rent'. The wealth node points down to two nodes: 'Examples of wealth: property, shares, savings' and 'Liabilities such as mortgages reduce net wealth'. The examples-of-wealth node points down to 'Wealth can generate income, e.g. dividends from shares', which in turn points to the income node, showing that wealth can produce a flow of income.
    • 1Box 1

    • 2Box 2

    • 3Box 3

    0 of 3 labelled

    There is more to this lesson

    The full lesson goes on to check your understanding and help you earn the marks. Create a free account to carry on, with your progress saved.

    Carry on with the full lesson

    A week of Premium from your first lesson · Then the free plan continues · No card, no charge

    Test your understanding of Re-distribution of income and wealth: a) The distinction between income and wealth

    Active recall beats re-reading. Take an instant quiz now to test what you’ve learned and lock it into long-term memory.

    Take topic quiz

    A week of Premium from your first lesson · Then the free plan continues · No card, no charge